Even for food inflation, FDI in Multibrand retail= APMC angle needs to be discussed.

APMC Acts: What and Why?

In news columns, and TV Debates surrounding food inflation and FDI in multibrand retail, you’ve often heard experts talking about APMC acts. So, what are these APMC Acts and how did they led to proliferation/nuisance of middlemen/intermediaries in food supply chain?

Even when electronic auction centres were established like the Safal National Exchange in Bangalore, the existing markets did not allow the transition to a transparent system.

No Value Addition

Middlemen have no facilities to do grading/sorting, all they do is pass the produce from farmer to final consumer and charge truckload of commission in between.

Thus, post-harvest losses continue to be in the range of 18 to 40 per cent for several commodities

Price Discovery

For cereal, pulses and oilseeds, government announces Minimum support prices (MSP). So farmers know in advance, what the price of their produce.

But for most perishables fruits/veggies, government doesn’t declare MSP.

thus, farmers are completely dependent for price discovery and on intermediaries

During peak production of seasonal crops, prices drop so drastically, the farmers can’t even cover the cash expenses of transportation to markets, leave alone the cost of production.

No auction

The licensee traders and commission agents have formed informal cartels @mandis. No auction takes place. Even if auction is held, collectively these traders keep low bidding so farmer never benefits.

Cess

Cess= tax on tax

In every Mandi, every transaction is subjected to market tax + market cess.

This Cess money is to be used for further development of Mandi infrastructure- sorting grading storage facilities etc.

But money is not used for that purpose (Raja/Kalmadi-type elements omnipresent.)

As a result, fruits and veggies often get rotten due to lack of processing, storage facilities at the Mandi. Even the good produce gets contaminated due to flies and larvae=>gastrointestinal diseases.

License raj=Lootera-raj

To operate in an APMC Market (Mandi), you need to get a license. This license raj leads to following problems:

In most Mandis, the pre-condition to get license=> you must own a shop or warehouse in the Mandi. But Shops / warehouses are limited n number= extremely high prices.

If you can’t find a shop/warehouse, then you’ll have to find an old man who has license but leaving business due to age/health problems and his sons not keen to join this profession. Then you buy his shop/license @extremely high price (because there will be other buyers too outbidding each other to buy his license!)

In any business where license is required=>Bribes have to be paid. Be it Telecom or mining or APMC mandi. So again, you must exploit the farmers to recover your (bribe) investment.

Because 1+2+3=> Commission agent/middleman/trader has to make heavy investment to start his business in APMC. So, he decides to exploit the farmers to recover that big investment.

In Mandi, even weighmen, Paddlers, Hamals have to get license => they also need to pay huge bribes=> they also overcharge the farmers to recover their (bribe) investment.

Hoarding

Over the years, India’s Agro-production has increased but number of intermediaries in APMC remained constant= their cartel controls the supply= hoarding, opportunistic profiteering. But how? Let’s understand that with potato example:

Potato: peak supply

December to March

Potato demand

Throughout the year.

Big traders, agents: they buy potatoes from farmers @throwaway prices in the Mandi.

They rent large cold storage houses across different states for storing potatos only. (Majority of cold storage facilities in Uttar Pradesh and West Bengal only devoted to Potato-storage)

Thus these traders “control” the potato supply across India. And whoever can control the supply, can control the prices.

Thanks to this hoarding and cartelism=> in peak and lean season of potato, you’ll find price difference up to 150 per cent or even more. Similar case for onions, tomatoes, daal and everything else.

APMC Definition vs MSP

In APMC Acts, the definition of “agriculture”=very wide and vogue.

Although main focus was on cereals, pulses and oil-seeds, even horticulture produce (fruits and veggies) also came within the broad definition of agriculture.

And over the last five decades, the share of perishable produce in the APMC market is increasing For example, the Azadpur Mandi in Delhi principally caters to perishable crops rather than cereal or oilseeds.

Ok so what’s the problem?

Problem= government declares minimum support prices (MSP) for many cereal, pulses and oilseeds crops=> middleman @APMC cannot exploit the farmers beyond a level (otherwise he can sell it to the FCI)

but for fruits and veggies, government doesn’t declare minimum support prices (MSP)=> gives plenty of opportunity for the middleman to exploit farmer (as well as end consumer).

Model APMC Act

So far we saw that original APMC Acts enacted by various states=bogus, inefficient, useless, ridiculous.

2003

After years of badass thuggary and inefficiency, suddenly Union agriculture ministry woke up, drafted a new Model APMC act, and asked the State governments to adopt it. (Why? Because Agriculture is a state subject. So it is upto the States to reform their laws..)

2006

Bihar repealed its state APMC act altogether.

2012

So far only 16 states have adopted the model APMC act. (as per the reply given by $harad Pawar in Loksabha)

This new/reformed/model APMC Act of 2003 has following features

Model APMC Act: Salient Features

New Model Act

Old Bogus Act

Farmer doesn’t need to bring his produce to APMC Mandi. He can directly sell it to whomever he wants. (Although, if he doesn’t bring his produce to Mandi, then he cant run for election in that APMC marketing committee.)

Public Private Partnership in the management and development of agricultural markets in the country for post-harvest handling, cold storage, pre-cooling facilities, pack houses etc.

lolz

A separate Chapter to regulate and promote contract-farming arrangements in the country.

Dispute resolution mechanism for contract farming.

lolz

Prohibits commission agents in any transection.

commission agents permitted.

establish State Agricultural Produce Marketing Standards Bureau

for Grading, Standardization and Quality Certification of agricultural produce (so they can fetch higher prices in desi-foreign markets)

lolz

Increased the responsibilities of APMC committee. They have to:

ensure complete transparency in pricing system and transactions taking place in market area;

ensure payment for agricultural produce sold by farmers on the same day;

promote agricultural processing + value addition

Publish data on arrivals and rates of agricultural produce brought into the market area for sale.

Setup and promote public private partnership in Mandi Management.

maha-lolz

Ok this new Model APMC act sounds all well and good. But here are the problems

Model APMC Act: Limitations/Problems

So far, Only 16 states adopted the Model APMC Act (as of 2012). Why? Because Middleman/trader lobby made truckload of cash from exploiting farmers and consumers. Part of that money given in election funding to ruling parties in States=>reforms stalled.

Model APMC act is not ‘uniformly’ adopted, states have made their own modifications. For example

Andhra

Andhra Pradesh permitted private markets but they’ve to pay a license fee of Rs 50,000 and project must be min.10 crores =discourages small farmer/trader associations from setting up their own private markets.

Odisha

Orissa has not permitted private markets for paddy/rice

Haryana

Only adopted Contract farming related provisions.

Some states

Even the private markets are subjected to Mandi tax and Mandi cess.

commission agent

Madhya Pradesh abolished commission agent system but some other states didn’t adopt this provision of model APMC.

Bihar

Repealed its APMC act in 2006.

Now, SDM is in-charge of the unregulated markets

No market fee are charged from the farmers But other charges for loading/unloading/Hamal charges are vogue/uncontrolled.

WB

Yet to amend its APMC Act.

Mamata opposing the concept of contract farming on the premise that it could jeopardise farmers’ interests.

Additional suggestions to reform APMC

(These were made by committees of planning commission, inter-ministerial groups etc.)

Remove horticulture

Horticulture should be specifically excluded from definitions of APMC. Because these Mandis are main culprits for inflation and wastage of fruits and veggies.

E-Auction

All APMCs Mandis should introduce electronic auction platform

Membership

Open membership of APMC’s by encouraging wholesalers and retailers to enter into transactions with the growers.

No License

Anyone should be allowed to trade in APMC market. Licensing system should be abolished.

The APMC Market Committee should only fix the transaction fee and keep a Bank Guarantee from traders to ensure that the farmers’ payment is not affected.

No Cess/Tax

all the taxes/cess levied in APMC Mandis should be abolished.

Contract farming

Contract farming is a forward agreement between farmers and buyers

buyer

Agrees to buy produce from farmer @predetermined price.

Usually provides inputs (Seeds, fertilizers, pesticides), technology and production practices so that final produce meets his desired quality.

farmer

Agrees to grow and supply the produce to the buyer @ predetermined quality, quantity and prices.

Contract farming is prevalent only in those states, where the APMC acts are favorable for private player e.g. Andhra Pradesh, Himachal Pradesh, Madhya Pradesh, Maharashtra who adopted the model APMC Act.

In 2006, After sleeping for decades, Government enacted Food Safety and Standards Authority of India (FSSAI) Act to provide for a single food law regulator, and repealed those outdated acts. But until then, for so many years, those old laws did not allow Indian food processing industry to grow. How?

They dealt only with physical parameters of size, colour and farm impurities. But not on microbiological and toxicological characteristics (which are necessary for export to US/EU).

Food laws are often inconsistent and contradicting each other. e.g. Emulsifiers and Stabilisers are permitted for use in Jams, Marmalade & Fruit Chutney under PFA but not under FPO.

In many cases, where one standard is more stringent than the other. Then food-entrepreneur would adopt the more stringent standard in order to prevent potential penalization and bribe harassment by food inspectors. For example, FPO allows use of artificial sweeteners in certain fruit products whereas PFA does not. Hence, the industry avoids using artificial sweeteners altogether.

FSSAI Act 2006: Features

Established a statutory body The Food Safety and Standards Authority of India (FSSAI) @Delhi Under the Administrative control of Ministry of Health & Family Welfare

Create information network across the country to connect public, consumers, Panchayats etc.

Provide them rapid, reliable and objective information about food safety

Rapid alert system for food contamination and biological risk

Promote general awareness about food safety and food standards.

HRD

Training to people involved in food business

In the next article, we see the finance-taxation-FDI-export matters related to food processing industry. Then we’ll dig into Supply chain management, upstream-downstream requirements for individual sectors: dairy, confectionary, fruit-veggies meat-fish, etc.